An edited version of this post appears on Liberal Conspiracy.
“We agree… to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.”
Those were the stirring words of the G20’s London Summit communiqué last month. In advance of the summit, Gordon Brown was keen to put himself at the vanguard of the heroic frontal assault on those sun-kissed foreign resorts. “Old tax havens and the regulatory havens have no place in this new world,” he declared. So is his government going to start cracking down on tax havens?
I’ll come to the G20’s solution, that “international standard”, in a minute. First, picture the scene. Brown, Sarkozy, Merkel and Obama in shining armour at the head of a massed global army beetling over the shores of Grand Cayman/Bermuda/Zurich high street. The siege ladders are ready and the trebuchet is limbering up. Because that is the spectacle the G20 invite us to behold.
One problem for Gordon Brown in declaring war on tax havens is that he’s in charge of lots of them. No less than seven British overseas territories – Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands – are on the G20’s grey list of countries that still aren’t complying with the information sharing standard, as Tory MP Sir John Stanley told the Commons recently.
This isn’t a rhetorical point. The Westminster government has complete discretion to intervene in the administration of these territories whenever it wants. In theory, Gordon Brown could tear up the Cayman constitution tomorrow and impose on it a UK-style tax regime.
He won’t, though. Last December Alistair Darling announced a review of Britain’s offshore financial centres to examine the “opportunities and challenges” facing them. The review under former Bank of England director Michael Foot is examining, amongst other things, the territories’ tax regimes, with one eye on what the G20 agreed, according to their interim report. But ministers have already declared that Foot’s review will not lead to any change in the territories’ governance or their tax affairs.
According to Brown (who, to give him credit, has written to the overseas territories about it) and the G20, the way to fix tax havens is to get them to sign up to information-sharing agreements. If a country’s tax authorities wish to check that companies aren’t evading tax or exploiting legal loopholes, they can write to the authorities asking for information (number of Swiss bank account, amounts of money paid out etc.) The handbook for all this – that “tax standard” mentioned above – comes from the Organisation for Economic Co-operation and Development.
But the OECD only wants information to be available on request, rather than, as tax campaigners and many MPs want, automatically surrendered to the parent countries of the citizens and companies who bank there. To request it, you need their name, knowledge of the taxes in question and preferably knowledge of who holds the information. Tricky, when banking arrangements are shrouded in secrecy.
Finally, whatever money the Treasury can claw back from tax havens, what about those countries who need it even more than we do? The Commons saw a vigorous debate about tax avoidance last week, as Tory, Lib Dem and Labour MPs queued up to attack the government’s approach. Among them was Vince Cable, who highlighted a Christian Aid report suggesting that developing countries lose $157 billion to tax avoidance every year. Treasury minister Ian Pearson promised that the Department for International Development – which of course pays out aid to the same countries – is conducting a review on that very subject, to report “imminently”.
What happened to the G20’s siege ladders and trebuchet? Tax campaigners may well argue that they were waved around for the media before being packed away. The DFID report may yet change their minds – whether it influences No 10 and No 11 is another matter.